Bankruptcy in Canada & Your Credit Report
When you file for bankruptcy, your credit report is updated to reflect this fact. Many people are concerned about how long a bankruptcy in Canada remains on your credit report. A bankruptcy is noted on your credit report for six years after you are discharged from bankruptcy, if it is your first bankruptcy. However, if you have filed bankruptcy before, it will remain noted for 14 years.
A lot of people are very concerned about this information remaining on their credit report for years after being discharged. In one sense, this is a valid concern. Your credit report is important. It is one tool that lenders use to determine if they will give you a loan and, if so, what interest rate you will be given. However, it’s also important to remember that, if you are in a position where filing bankruptcy makes financial sense for you, then your credit report has likely already been damaged.
How Credit Reports Work
Your credit report contains a lot of information about your financial life. It contains information on every loan that you have taken out in the last six years. It also includes information on how much you owe on each account, how often you pay and your limit on each account as well as additional information.
The information in your credit report is used to calculate your credit score.
If you are considering bankruptcy, you likely have a large amount of debt. You have also likely missed payments or been late with payments in the past. If you have routinely missed payments or if you have taken on a very high amount of debt relative to your income and expenses, your credit score will likely be quite low. If this is the case, bankruptcy could be helpful to you. While it will remain noted on your credit report for a while, filing for bankruptcy also puts you into a situation where you are able to start rebuilding your financial affairs. There are programs available for rebuilding credit that will allow you to begin the process before you are discharged.
Bankruptcy & Your Credit Score
When you file for bankruptcy, you eliminate most (if not all) of your debts. Despite the fact that your bankruptcy is noted on your credit report, this will likely put you in a more stable financial position than you are in currently. When you are in a high amount of debt, you likely end up missing bill payments. This leads to creditors calling and collection agencies hounding you. In addition to being incredibly stressful, a situation like this one can also open you up to legal action from your creditors.
When you file for bankruptcy, your creditors are no longer able to contact you directly. All communication must be done through your trustee in bankruptcy. In addition, creditors are not able to take any action to collect their debts, so they cannot send collection agencies after you and they cannot start legal action against you to collect what you owe. Payments under a separation agreement are excluded.
This situation means that you will no longer have to worry about dealing with creditors. It also means that you won’t be able to hurt your credit report anymore. Every time you miss a payment, you damage your credit report further. Once you file for bankruptcy, this can no longer happen. Therefore, you are then free to start rebuilding your credit score and improving your credit report.
Rebuilding your Credit Score after Bankruptcy
An important factor that is noted in your credit report and used to calculate your credit score is making payments on time. As mentioned, missing debt payments can hurt your credit. The opposite is also true: Paying on time helps improve your credit.
Therefore, in order to improve your credit rating, you will need to show that you can borrow money and pay it back successfully. Once you file for bankruptcy in Canada, you may find it difficult to get a loan. However, once you have been discharged, one option that you have is to get a secured credit card. With this card, you put down a deposit and this deposit becomes your credit limit for the card. For example, if you put $500 down, you will have a card with a $500 limit.
You can then use this card just as you would any other credit card. Make sure to pay your bills as you receive them and to not miss any payments. By showing that you are able to borrow money and pay it back on time, you can improve your credit report after bankruptcy.